Mahathir exit opens new trade doors

By Tim Colebatch
Economics Editor
Canberra

After a decade of knockbacks, Australia has finally been invited to begin free trade negotiations with its South-East Asian neighbours.
The unexpected approach by the 10-member Association of South-East Asian Nations comes just six months after Australia's arch-enemy in the region, former Malaysian Prime Minister Mahathir Mohamad, stepped down from politics.
Dr Mahathir twice vetoed negotiations, in 1995 and 2000, when Australia and New Zealand sought to join ASEAN's free trade area.
But yesterday Malaysia's veteran Trade Minister, Rafidah Aziz, was one of 10 ministers who signed a communique proposing to "upgrade economic relations" with Australia and New Zealand to the next level.
In a cautiously worded communique, the ministers, meeting in Singapore, proposed a summit of the 10 ASEAN leaders later this year with Prime Minister John Howard and New Zealand Prime Minister Helen Clark to launch negotiations.
Any trade deal with ASEAN would be bigger than the controversial free trade deal struck recently with the United States.
The approach would not lead to Australia and New Zealand joining ASEAN, but rather to a link between ASEAN's own free trade area and the Australia-New Zealand free trade arrangement, creating one big free trade area with an output rivalling Japan's.
Trade Minister Mark Vaile and Foreign Minister Alexander Downer warmly endorsed the move, calling it "a welcome step forward".
Speaking from China, Mr Vaile said Australia had made no secret of its ambition for a free trade agreement with ASEAN, and he, Mr Downer and senior officials would meet their counterparts in coming months to explore the next steps.
The two ministers highlighted the political significance of the move, coming after years of Labor attacking the Government for neglecting the region.
"The welcome step forward by the ASEAN economic ministers reflects Australia's successful and broad engagement with the countries of our region," they said in a statement.
But some Australian sources have expressed a degree of caution. They said it could take time before it was clear how committed ASEAN leaders were to the idea, and what level of free trade it might lead to.
Australia already has a free trade agreement with Singapore, and has just completed negotiations with Thailand. But other Asian countries such as Indonesia, Malaysia, the Philippines and Vietnam have serious trade barriers to Australia's exports, including car tariffs as high as 300 per cent in Malaysia.
Officials will try to find out in coming months whether these barriers are likely to be included in negotiations, or carved out from them.
Another issue is the priority ASEAN would give to negotiations with the Australian-New Zealand partnership at a time when it is also negotiating a free trade agreement with China.
The ASEAN group is Australia's third-biggest trade partner after the European Union and Japan, accounting for 11 per cent of our exports and 15 per cent of our imports. In the year to February, it exported almost $20 billion of products to Australia and bought $14 billion in return.
Its biggest economy is Indonesia, with a real output in 2002 valued at $A1030 billion, about 40 per cent bigger than Australia's. It is followed by Thailand ($A622 billion), the Philippines, Malaysia, Vietnam, Singapore, Burma, Brunei, Cambodia and Laos.
It is particularly important as a market for Victoria's dairy exports, manufactured exports generally, and for oil, gold and cotton.
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